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July 1st, 2011

You can still be on the hook if your ex doesn’t pay the mortgage

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Credit ScoreRenowned personal finance expert Lynnette Khalfani-Cox has become the latest contributor to sign on with HSH.com. Lynnette’s first article for HSH will be published on Monday, July 5 (so be on the lookout).

But before we begin to see original work by Lynnette on HSH.com, I wanted to discuss a really interesting topic she addressed on her own website, TheMoneyCoach.net:

What happens if your ex-husband or wife stops making mortgage payments?

Well, plain and simple, it could spell disaster for your credit score.

“Lenders don’t just automatically remove people from loans simply due to divorce,” writes Lynnette. Even if you and your ex amicably split your assets between the two of you, that doesn’t mean your creditors will abide by that.

Co-signing

“In fact, whatever deal you work out with your soon-to-be ex-spouse has no bearing whatsoever on your legal responsibility to repay debts for which you and he were both co-signers,” she writes. “In a nutshell, this means that if the two of you co-signed for credit cards, your house, a car note, or anything else, then your creditors can still legally come after either one of you for repayment.”

Sell the home

The easiest way, according to the Money Coach, to avoid putting your credit in danger when dealing with your home during a divorce, is to simply sell the property. This way, both you and your ex’s debt obligations have been taken care of.

Alter your property settlement agreement

A great tool to protect yourself and your credit rating following a divorce is to add certain language, conditions and liabilities to your property settlement agreement (PSA):

…Include in your divorce agreement (sometimes called a Property Settlement Agreement, or PSA) a strongly-worded paragraph that addresses several aspects concerning the house. First, your PSA should note that your ex-husband is assuming full ownership of and liability for the home. Next, the PSA should state a certain effective date that he is solely responsible for the house – including the mortgage, property taxes, maintenance on it, etc. Additionally, include a clause indicating that until the divorce is finalized, the mortgage company is to also give you a copy of the monthly statements. That way you can keep an eye on things and bring up the issue early on if he doesn’t pay.

Lastly, the PSA should note financial penalties and consequences that are imposed in the event that he doesn’t pay.

Lookout for more Lynnette

Readers, I encourage you to be on the lookout for Lynnette’s upcoming work that will appear on HSH.com. Besides just writing, Lynnette is also a television and radio personality, and the author of numerous books. Lynnette has appeared on such national TV programs as The Oprah Winfrey Show, Dr. Phil, The Today Show and Good Morning America. She can frequently be seen as a guest commentator on CNN, MSNBC, ABC and FOX Business Network.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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